Siddhartha G. Dastidar Raymond Fisman Tarun Khanna
Abstract
We examine the effect of regime change on privatization using the 2004 election surprise in India. The pro-reform BJP was unexpectedly defeated by a less reformist coalition. Stock prices of government-controlled companies that had been slated for definite privatization by the BJP dropped by 3.5 percent relative to private firms. Surprisingly, government-controlled companies that were only under study for possible privatization fell by 7.5 percent relative to private firms. We interpret this as evidence of investor belief of policy irreversibility, where reforms may reach a stage beyond which future regimes have difficulty reversing those policies. Further analysis suggests that layoffs, combined with the privatization announcement, served as a credible commitment to the government's privatization agenda.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
13427.
Length: Date of creation: Sep 2007 Date of revision: Handle: RePEc:nbr:nberwo:13427
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Find related papers by JEL classification: G15 - Financial Economics - - General Financial Markets - - - International Financial Markets G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Boundaries of Public and Private Enterprise; Privatization; Contracting Out
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